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Hacked BitCoin Exchange Sued By Customers
judgecorp writes "Bitcoinica, an exchange for the BitCoin virtual currency, is being sued by former customers, after it was hacked. Thieves stole around $180,000 worth of BitCoins in two attacks. The site is now closed, and customers are suing to get their money back."
I guess if you're going to claim damages for a virtual goods, the inflation phase of a bubble is as good a time as any.
Wouldn't do to wait too long either, or you'll get your damages in shoe strings and bubble gum.
I note too the hilarious claim in TFA that "BitCoins have generally hovered at a price of around $14 to $17".
Bitcoins have generally hovered around zilch, except for a brief investment bubble around last July, after which they have hovered around $5 until a recent and presumably temporary uptake.
I could answer this one two ways, but I'm going to go with blaming the victim on this one. There have been a rash of thefts surrounding BitCoin wallets in some of the stupidest ways (any number of BitCoin sites, for God knows what reason, have been using MySQL for their backend, and more than a few have been using PHP) -> show of hands on /., if you were designing / developing a website that dealt primarily with money, would you use MySQL? And why not?
Your wallet.dat file is your wallet. BitCoins = cash. Think about online areas the same way you think about offline areas -> there this dude who wants to hold my wallet for me, I don't really know him, but everyone else seems to trust him, even though he's only been standing on this street corner for about 5 minutes, and has all the wallets in a 20 gallon transparent plastic bag...should I trust him as well? Fuck no. Put your wallet on your cellphone or usb keychain or anything that you can see, and PHP encrypt it. Don't know what PGP is? Good news, it's the equivalent of Fort Knox, has been around for a long time, and is the key to not hating yourself if / when you store over $1,000 worth of BitCoins in your wallet and have it stolen because you couldn't be troubled to lock the f*cking door. Takes like 30 minutes, possibly less, to find a helpful tech (something above the level 1 hell-desk types, find a domain / network admin, bring tea as a peace offering), have him / her generate the key and set you up.
Bonus question -> since I know a few of you are interested in getting into the financial district -> what is the natural consequence of using floating point data types for fiscal transactions?
I am John Hurt.
The Bitcoin infrastructure might be secured, it's just that the weakest link is in the server
When the server is hacked, and all the info (Bitcoin is made up of encrypted information, please correct me if I am wrong) contained within it is stolen, it's as good as the Bitcoins were stolen and can be used elsewhere
Therefore, the one crucial thing for the Bitcoin infrastructure designers to do is to find ways to shore up the security of the Bitcoin servers, and make it as difficult as possible (it's impossible to make _any_ server 100% guarantee secured, I know) to be hacked
Muchas Gracias, Señor Edward Snowden !
Gold stored in a bank is the only money you can count on
not really no. Gold can float in price wildly (http://goldprice.org/charts/history/gold_10_year_o_usd.png ). That's only a 10 year, during which gold has done very well, until the 2008 crash, and then it's been down 15% or so since then.
Gold (and diamonds) are just commodities like any other. Sometimes they do well, sometimes they do badly. In the same 10 years gold has gone from the 300-400 ish (not sure exactly for 2002) to 1600 roughly a factor of 4-5, oil has gone from 22 to 93 dollars a barrel (with a spike in between just like gold) which is a factor of 4 and a bit.
http://inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp If you notice, in 1998 oil was just under 12 dollars a barrel. It went up to 27 in 2000, dropped to 20 ish and then has a long climb since.
So ok, we looked at some 10 year trends and proved lots of commodities swing wildly, including fake money (gold). Now lets have some real fun. Lets look at the price of gold since the unification of germany (1871) on an inflation adjusted (rather than just nominal) basis http://www.vanguardblog.com/2010.07.26/gold-rush.html now that's interesting. Notice the batshit crazy spikes in the late 70's and 2010. Uh huh. That doesn't mean it will go down, but if you'd bought gold in 1981 and needed to retire 20 years later you would have lost most of your buying power.
Gold isn't feasible. There simply isn't enough of it available to back all the money necessary for the modern economy.
With a gold-backed currency, a billion-dollar deal needs a billion dollars' worth of gold. That's about 0.5% of the world's total supply of gold, currently valued at about $180 billion. For reference, the United States alone currently has a money supply of about $2 trillion, more than ten times the world's supply of gold. Since the amount of available gold is relatively fixed (growing slowly, but nowhere near as fast as the economy grows), the increasing demand for money far outpaces the supply of gold. That means the gold standard deflates, where by simply holding on to money its value increases. Since trade is unlikely to be as profitable as doing nothing, the whole economy grinds to a halt. That means no commerce, no jobs, and a massive recession. But at least you have a shiny chunk of metal!
Diamonds are just as bad, but differently. Diamonds aren't rare. They aren't even particularly uncommon, except for enormous ones. Rather, their scarcity is artificially maintained by DeBeers, whose existence depends on maintaining that scarcity. Heck, synthetic diamonds are cheaply available for industrial use, so any use of diamonds as money is effectively turning tools into cash overnight.
You do not have a moral or legal right to do absolutely anything you want.
Note that on this so-called "exchange" you could never actually convert Bitcoins to any other currency. Sure you could "sell" your coins, but you had to buy new Bitcoins to ever get your money out. Mainly Bitconica was used by people trying to short Bitcoins or dollars. This kind of arrangement is known as a bucket shop and has been illegal for a very long time for very good reasons. Namely the people running the site can always manipulate the exchange rates to clean you out, and therefor pocket all your money.
Of course, the 17 year old kid running the whole thing always said that trades went out to real exchanges, but the volume on other exchanges never was anything near what was required for that to be plausible. Meanwhile the whole time people were "zoutong'd" whenever the alleged exchange rate went against their bets.
The whole thing is shady as fuck, although to the credit of Bitcoin people, a lot were asking questions about the thing right from day one, see here and here. (the latter is one of Bitcoins main developers)
Can you please explain your "gold does not fluctuate as much as the paper dollar" stance in light of the price of gold falling from USD850 per ounce in January 1980 to below USD300 in June 1982. Close to a 2/3 loss in value in two years counts as "remaining almost constant?"
Your comments regarding the relative price of a suit and an ounce of gold a century ago are irrelevant, for a number of reasons:
Past performance is no indicator of future performance.
You were not buying a suit with any form of money in 1913.
You will not be buying a suit with any form of money in 2113.
In the long run we are all dead.
If you look at your history in a little more depth you will see that basing your currency on gold and silver cause all sorts of issues precisely because the price of the metals DOES vary. And vary a lot.
Zapsavings: Simply calculate how much energy efficient bulb
Before anybody else gets hurt, I need to say that Singapore is NO tax heaven.
I said "haven", not "heaven". A "heaven" for taxes in my opinion is too strong a word.
In any case, you're right for the most part, but Singapore still has no capital gains tax and so this fact may apply in this very special case of accrued imaginary BitCoins, just like it applied to the co-founder of Facebook and the imaginary capital gains of his stocks during Facebooks' initial public offering.
I'm not a hardcore economics geek or anything, but the argument that I've found the most persuasive is that gold and other fixed-supply currencies are a bad idea because the economy itself is growing and increasing it's value. If your currency supply is fixed and your overall economic value is growing, then you get deflation, which discourages people from spending or investing their money because letting it just sit there will increase its value just as fast as investing it would. Apparanly, you get a nasty boom-bust cycle when large economic activity creates lots of extra wealth, but the money supply is fixed so it all deflates, then nobody wants to spend anymore, and the economy crashes again until total wealth drops back down to where it makes sense to invest again. I'm not completely sure if it's true, but I've heard that the whole European colonial period really came about because the societies at the time were creating lots of extra wealth and they had to find more gold to represent that wealth in order to avoid deflation, and it seems to make a kind of sense.
Essentially, to have a economy that it stable in the long term, you must inflate your currency at a controlled pace to create low but positive inflation. Thus, you must have a Fiat currency, and it basically has to be controlled by the Government.
Also persuasive is that we have hundreds of countries with all sorts of governments and economic policies. If the gold standard was such a great idea, then wouldn't some country somewhere try it and out-compete everyone else, or at least their neighbors/local rivals?
Now whether recent government have done a lousy job of running the economy and the currency, that's a whole different argument...
I don't reply to ACs
Just about every "Bitcoin exchange" has had some huge problem. Either they take the money and run, or they get broken into and lose the money.
Tradehill sounded like the most legitimate of the exchanges. Then, in February 2012, Tradehill shut down with no notice, after a big chargeback from Dwolla. They did refund the money, though.
Bitcoinica collapsed and lost customer funds. There was the Bruce Wagner fiasco. Below that level, there were about a dozen other "exchanges" and "online wallets" that lost customer funds.
Mt. Gox is almost the only exchange that hasn't yet lost customer funds or collapsed. Even there, one wonders. They're vague about who's really behind the organization. Mt. Gox started as "Magic, the Gathering Online Exchange."
Okay, Macroeconomics 101. We'll start with the way things work now, then explain the difference, then discuss why fixing it won't work.
Currently, with fiat money, billions of dollars every day are "created" and "destroyed" through the fractional reserve banking system. Like virtual particles of matter and antimatter, there is an equal amount of debt created and destroyed as well. The net value of what the banks hold does not change, because their created debt and created assets cancel each other out. If a bank's brought in only $1 million in deposits, its net assets are only $1 billion, regardless of how much the bank has borrowed from the Federal Reserve Bank.
When someone (Acme, Inc.) wants to do something that they don't have money for (develop a new model of rocket-powered roller skate, for example), they can get a loan for it from a bank. Thanks to fractional reserve banking, that loan is practically unlimited in size, as long as two conditions are met:
By creating a sufficient supply of pure cash, the desired transactions can take place - contracts are signed, parts are ordered, workers are paid, and paychecks are deposited in the bank, just in time to pay back that bank's loan from the Fed. In the grand scheme of things, Acme gave money directly into the workers' accounts, and now has a huge debt to fill. Fortunately, those workers will soon be working, parts will be delivered, the contracts fulfilled, and sales will bring in enough revenue for Acme to negate that "anti-money" debt.
Of course, with debt effectively being "anti-money", it can function just like money can... Contracts can be arranged for deferred payment, and Parts can be bought on credit, and workers' checks can be delayed until after the work is done. Debt works just like money, with the only difference being who gets to hold it while obligations are fulfilled.
Note that through this whole process, the only money involved that doesn't have a loan to counter it is what the eventual customers pay Acme, Inc.for the shiny new roller skates. That's perfectly fine, since money is just a tool for facilitating trade. Why mandate that money be attached to a shiny metal when it's not going to exist as anything more than a placeholder for a few days before being annihilated?
Whew.
Now let's contrast that with a fixed currency like a gold standard. Since all money must necessarily be tied to something real, there is no possibility for a large loan. Banks simply cannot loan out more than they've been given by depositors, and since they'll need to keep cash on hand to cover bank runs, their capacity for loans is effectively crippled. When Acme asks for a loan to cover the investment to make new roller skates, too bad. The money for a loan simply isn't available, and never will be. After all, if a depositor comes asking for their money and the bank can't provide it, the bank goes bankrupt, so their fraction of loan-able money is measured against the risk of a run.
Without the loan to Acme, the contracts aren't signed, parts aren't made, and workers aren't paid. All trade is effectively limited by how much money one company can gather at one time, and then how much it's willing to spend to make some product. That's a liquidity crisis.
Liquidity crises are bad. The majority of damage in 2008 and 2009 (which we're still feeling today) was caused by a liquidity crisis. With no trade, jobs are lost, people get worried, and they turn to the savings in the banks... raising the risk of a bank run, and therefore lowering the amount the banks will loan out, which damages trade even more.
So why not simply declare an ounce of gold to be worth $1,000,000, so the government could still make huge loans?
No matter how much gold is valued at, the economy's growth will always eventually outpace it. As
You do not have a moral or legal right to do absolutely anything you want.